Chapter 9

Global Human
Resource Management

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 Content
• Introduction
• Staffing policy
• Expatriates failures
• Training & management development
• Repatriation of expatriates
• Performance appraisal
• Compensation
• Expatriate pay
2
Introduction
 What Is Human
Resource Management?
• Human resource management (HRM) refers
to the activities an organization carries out to
utilize its human resources effectively
• These activities include
– determining the firm's human resource strategy
– staffing
– performance evaluation
– management development
– compensation
– labor relations
• Firms need to ensure there is a fit between
their human resources practices and strategy
4
 What Is The Strategic Role Of
HRM In International Firms?
• HRM can help the firm reduce the costs of value
creation and add value by better serving customer
needs
– more complex in an international business
• differences between countries in labor markets, culture, legal
systems, economic systems, etc.
• HRM must also determine when to use expatriate
managers - citizens of one country working abroad
– who should be sent on foreign assignments
– how they should be compensated
– how they should be trained
– how they should be reoriented when they return home

5
 What Is A Staffing Policy?
• A firm’s staffing policy is concerned with the
selection of employees who have the skills required
to perform a particular job
– can be a tool for developing an promoting the firm’s
corporate culture - the organization’s norms and value
system
– a strong corporate culture can help the firm implement its
strategy
• There are three main approaches to staffing policy
within international businesses
1. The ethnocentric approach
2. The polycentric approach
3. The geocentric approach
6
What Is The Strategic Role Of
HRM In International Firms?
The Role of Human Resources in Shaping Organizational Architecture

7
Staffing Policy
 What Is An Ethnocentric
Staffing Policy?
• The ethnocentric approach to staffing fills key
management positions with parent-country nationals
– makes sense for firms with an international strategy
• Firms that pursue an ethnocentric policy believe that
– there is a lack of qualified individuals in the host country to
fill senior management positions
– it is the best way to maintain a unified corporate culture
– value can be created by transferring core competencies to a
foreign operation via parent country nationals
• But
– it limits advancement opportunities for host country
nationals
– it can lead to "cultural myopia"

9
 What Is A Polycentric
Staffing Policy?
• The polycentric approach recruits host country
nationals to manage subsidiaries in their own country,
and parent country nationals for positions at
headquarters
– makes sense for firms pursuing a localization strategy
– can minimize cultural myopia
– may be less expensive to implement than an ethnocentric
policy
• But
– host country nationals have limited opportunities to gain
experience outside their own country and so cannot progress
beyond senior positions in their own subsidiaries
– a gap can form between host country managers and parent
country managers
10
 What Is A Geocentric
Staffing Policy?
• The geocentric approach seeks the best people,
regardless of nationality for key jobs
– consistent with building a strong unifying culture and
informal management network
– makes sense for firms pursuing a global or transnational
strategy
– enables the firm to make the best use of its human
resources
– builds a cadre of international executives who feel at home
working in a number of different cultures
• But
– can be limited by immigration laws
– is costly to implement

11
Which Staffing Policy Is Best?
Comparison of Staffing Approaches

12
Expatriates failure
 What Is Expatriate Failure?
• Firms using an ethnocentric or geocentric
staffing strategy will have expatriate
managers
• Expatriate failure is the premature return of
an expatriate manager to the home country
– each expatriate failure can cost between
$250,000 and $1 million
– between 16 and 40% of all American expatriates in
developed countries fail and almost 70% of
Americans assigned to developing countries fail

14
What Is The Rate Of
Expatriate Failure?
Expatriate Failure Rates

15
 Why Do
Expatriate Managers Fail?
• The main reasons for U.S. expatriate failure are
– the inability of an expatriate's spouse to adapt
– the manager’s inability to adjust
– other family-related reasons
– the manager’s personal or emotional maturity
– the manager’s inability to cope with larger overseas responsibilities
• The reason for European expatriate failure is
– the inability of the manager’s spouse to adjust
• The main reasons for Japanese expatriate failure are
– the inability to cope with larger overseas responsibility
– difficulties with the new environment
– personal or emotional problems
– a lack of technical competence
– the inability of spouse to adjust

16
 How Can Firms Reduce
Expatriate Failure?
• Firms can reduce expatriate failure through
improved selection procedures
• Four dimensions that predict expatriate success are
1. Self-orientation - the expatriate's self-esteem,
self-confidence, and mental well-being
2. Others-orientation - the ability to interact
effectively with host-country nationals
3. Perceptual ability - the ability to understand why
people of other countries behave the way they do
4. Cultural toughness – the ability to adjust to the
posting

17
 Why Is A
Global Mindset Important?
• A global mindset may be the fundamental
attribute of a global manager
– cognitive complexity
– cosmopolitan outlook
• A global mindset is often acquired early in life
from
– a family that is bicultural
– living in foreign countries
– learning foreign languages as a regular part of
family life
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Training & Development
 What Is Training And
Management Development?
• After selecting a manager for a position,
training and development programs should be
implemented
• Training focuses upon preparing the manager
for a specific job
• Management development is concerned with
developing the skills of the manager over his
or her career with the firm
– gives the manager a skill set and reinforces
organizational culture
• Historically, most firms focus more on
training than on management development
20
Why Is Training Important For
Expatriate Managers?
• Training can reduce expatriate failure
• Cultural training - fosters an appreciation for the
host country's culture
• Language training - an exclusive reliance on English
diminishes an expatriate's ability to interact with
host country nationals
• Practical training - helps the expatriate and her
family ease themselves into day-to-day life in the
host country
• But, studies show only about 30% of managers sent on
one- to five-year expatriate assignments received
training before their departure

21
Repatriation of Expatriates
 What Happens When
Expatriates Return Home?
• Training and development should include
preparing and developing expatriate
managers for reentry into their home
country organization
– need good programs for re-integrating
expatriates back into work life within their
home country organization and for utilizing
the knowledge they acquired while abroad

23
Why Is Management Development
Important To Firm Strategy?
• Management development programs increase
the overall skill levels of managers through
– ongoing management education
– rotations of managers through jobs within the firm
to give them varied experiences
• Management development can be a strategic
tool to build a strong unifying culture and
informal management network, both of which
are supportive of a transnational and global
strategy
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Performance appraisal
 How Should
Expatriates Be Evaluated?
• Evaluating expatriates can be especially
complex
– typically, both host nation managers and home
office managers evaluate the performance of
expatriate managers
• But, both types of managers are subject to
unintentional bias
– home country managers tend to rely on hard data
when evaluating expatriates
– host country managers can be biased towards their
own frame of reference
26
 How Can Performance
Appraisal Bias Be Reduced?
• To reduce bias in performance appraisal
– more weight should be given to an on-site
manager's appraisal than to an off-site
manager's appraisal
– a former expatriate who has served in the
same location should be involved in the
process
– home office managers should be consulted
before an on-site manager completes a
formal termination evaluation
27
Compensation
 What Are The Key Issues In
Compensating Expatriates?
• Two key issues on compensation
1. How to adjust compensation to reflect
differences in economic circumstances
and compensation practices
2. How to pay expatriate managers

29
 How Should National Differences
In Compensation Be Treated?
• Currently, there are substantial differences in
executive compensation across countries
– a top U.S. executive made an average of $525,923 in the
2005-2006 period, compared to $237,697 in Japan, and
$158,146 in Taiwan
• Question: Should pay be equalized across countries?
• Many firms have recently moved toward a
compensation structure that is based on global
standards
– especially important in firms with a geocentric staffing policy
• But, most firms still set pay according to the
prevailing standards in each country

30
Expatriate pay
 How Should
Expatriates Be Paid?
• Most firms use the balance sheet approach -
equalizes purchasing power across countries so
employees have the same living standard in their
foreign posting as at home
• A compensation package has five components
1. Base salary - normally in the same range as the base
salary for a similar position in the home country
– can be paid either in the home currency or in the local
currency
2. Foreign service premium - extra pay the expatriate
receives for working outside his country of origin
– generally offered as an incentive to accept foreign
assignments
32
 How Should
Expatriates Be Paid?
3. Various allowances - hardship, housing,
cost-of-living, education
4. Tax differentials - may have to pay income
tax to both the home country and the host-
country governments if the host country
does not have a reciprocal tax treaty with
the expatriate’s home country
– company usually covers extra tax assessments
5. Benefits – many firms provide the same
level of medical and pension benefits abroad
that employees receive at home
33
Conclusion
 Why Are International Labor
Relations Important?
• Question: Can organized labor limit the
choices available to an international
business?
• Labor unions can limit a firm's ability to
pursue a transnational or global strategy
• HRM needs to foster harmony and
minimize conflict between management
and organized labor

35
 What Are The Concerns Of
Organized Labor?
• Organized labor is concerned that
1. Multinationals can counter union bargaining power
by threatening to move production to another
country
2. Multinationals will farm out only low-skilled jobs
to foreign plants making it easier to switch
production locations
3. Multinationals will import employment practices
and contractual agreements from their home
countries and reduce the influence of unions

36
 How Does Organized Labor
Respond To MNC Power?
• Organized labor has responded to the
increased bargaining power of multinational
corporations by
1. Trying to set-up their own international
organizations
2. Lobbying for national legislation to restrict
multinationals
3. Trying to achieve regulation of multinationals
through international organizations such as the
United Nations
• So far, these efforts have had only limited
success 37
 How Are MNCs Responding To
Organized Labor?
• Many firms are centralizing labor relations to
enhance the bargaining power of the
multinational vis-à-vis organized labor
– in the past, labor relations were usually
decentralized to individual subsidiaries
• The way in which work is organized within a
plant can be a major source of competitive
advantage so it is important for management
to have a good relationship with labor

38
 Review Question
The three types of staffing approaches for
international firms include all of the following
except

a) Transnational
b) Ethnocentric
c) Geocentric
d) Polycentric
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18-39
 Review Question
Firms using _______ fill all key management
positions with parent-country nationals.

a) An ethnocentric staffing policy

b) A geocentric staffing policy
c) A polycentric staffing policy
d) A transcentric staffing policy

40
18-40
 Review Question
When a firm wants to pursue a transnational
strategy, a _________ approach to staffing
makes
sense.

a) Ethnocentric
b) Geocentric
c) Polycentric
d) Transcentric
41
18-41
 Review Question
The most common reason for expatriate
failure is

a) The manager’s inability to adjust

b) The manager’s emotional or personal maturity
c) The inability of the spouse to adjust
d) The manager’s lack of technical competence

42
18-42
 Review Question
Which of the following does not help predict
success in a foreign positing?

a) Others-orientation
b) Cultural toughness
c) Perceptual ability
d) Technical expertise

43
18-43
 Review Question
Which of the following is not a response by labor
to
the increased bargaining power of multinationals?

a) Establishing global unions

b) Setting-up their own international organizations
c) Lobbying for national legislation to restrict
multinationals
d) Trying to achieve regulation of multinationals
through international organization such as the
United Nations 44
18-44